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Gold jumped on Wednesday after U.S. Federal Reserve Chair Jerome Powell reassured investors that the central bank would continue its accommodative monetary policy despite a spike in inflation readings.

 

·         Spot gold rose about 1% to $1,824.75 per ounce by 2:46 pm ET. U.S. gold futures settled up 0.8% at $1,825.

 

·         Powell, in prepared remarks before a congressional hearing, said the U.S. job market “is still a ways off” from the progress the Fed wants to see before reducing its support for the economy, while current high inflation will ease in the coming months.

 

·         The yield on 10-year Treasuries declined seven basis points to 1.35%

 

 

·         Data showed U.S. consumer price and producer price indexes surged last month.

 

·         “It (Powell’s comments) really cements the belief that despite this hotter inflation data, the Fed still remains on course to be fairly accommodative,” said Edward Moya, senior market analyst at OANDA.

 

“You’re going to see more dovish signals from the ECB and the People’s Bank of China, which should provide some support to the dollar, but this is still good news for the stimulus trade and that is going to be very positive for gold,” Moya said.

 

·         Investors on Wednesday also cheered comments by European Central Bank (ECB) officials that the central bank would not tighten too early.

 

·         Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-interest bearing bullion.

 

·         A weakened dollar, which restored gold’s allure to holders of other currencies, and a dip in U.S. treasury yields, added further support.

 

·         TD Securities also said Chinese funds may have been buying gold’s recent dip, with physical purchases also providing support.

 

·         SPDR GOLD HOLDING:

·         Elsewhere, palladium edged up 0.2% at $2,833.50 an ounce, while platinum jumped 2.3% to $1,130.01.

 

·         HSBC said in a note, that while it expects platinum to be in a small surplus this year, prices would remain firm largely in response to rising automobile demand and average $1,160 an ounce this year.

 

·         Silver climbed 0.8% to $26.18 per ounce.

 

·         Powell says the Fed is still a ways off from altering policy, expects inflation to moderate

Federal Reserve Chairman Jerome Powell said Wednesday that the economy needs to improve more before the central bank will change its ultra-easy monetary policy.

In remarks prepared for the House Financial Services Committee, the central bank chief noted improvements but said the labor market in particular is still well below where it was before the Covid-19 pandemic hit.

 

·         Job gains strong, prices rising as U.S. recovery continues -Fed Beige Book

A strengthening U.S. economy was spinning off broad-based job gains through early July that were particularly strong for lower-skilled occupations, the Federal Reserve reported Wednesday in its latest Beige Book compendium of reports about the economy.

But prices were also strong, rising "at an above-average pace," the Fed said, with its business contacts apparently uncertain that higher inflation would fade soon.

 

·         U.S. producer prices post biggest annual gain in more than 10-1/2 years

U.S. producer prices accelerated in June, leading to the largest annual increase in more than 10-1/2 years, suggesting inflation could remain high as robust demand fueled by the economy’s recovery from the COVID-19 pandemic strains the supply chain.

The producer price index for final demand increased 1.0% last month after rising 0.8% in May. A 0.8% jump in the cost of services accounted for nearly 60% of the increase in the PPI. Services rose 0.6% in May. Goods prices climbed 1.2% after accelerating 1.5% in the prior month.

In the 12 months through June, the PPI surged 7.3%. That was the biggest year-on-year rise since November 2010 and followed a 6.6% advance in May. Economists polled by Reuters had forecast the PPI would increase 0.6% in June and rise 6.8% on a year-on-year basis.

INFLATION LIKELY PEAKING

The Fed slashed its benchmark overnight interest rate to near zero last year and is pumping money into the economy through monthly bond purchases. That ultra-easy monetary policy stance, COVID-19 vaccinations and nearly $6 trillion in government relief since the pandemic started in the United States in March 2020 are whipping up demand.

But inflation is likely nearing its peak. Excluding the volatile food, energy and trade services components, producer prices rose 0.5%. The so-called core PPI gained 0.7% in May. In the 12 months through June, the core PPI accelerated 5.5%. That was the largest rise since the government introduced the series in August 2014 and followed a 5.3% increase in May.

 

·         The ECB starts work on creating a digital version of the euro

The European Central Bank announced Wednesday that it’s starting work toward creating a digital euro currency as more consumers ditch cash.

 

·         Bank of England expects ‘bumps’ as economy reopens, official says as inflation surges

The central bank has projected that inflation will peak above 3% by the end of the year as the economy bounces back from its historic decline in 2020, but will be transitory and does not require a hawkish pivot in monetary policy.

 

·         China’s GDP grew 7.9% in the second quarter; retail sales beat expectations

 

·         Iran not ready for nuclear talks until Raisi takes over

·         CORONAVIRUS UPDATES:

·         Covid cases are surging again in Latin America and the U.S., WHO officials warn

Covid infections are rapidly rising again in the U.S. and Latin America as more contagious variants spread, putting the entire region at risk, World Health Organization officials said in a briefing Wednesday.

Reference: CNBC, Reuters, Worldometers